Alan Freeman and Bill Freeman,brothers,operated a residential construction firm.There were three divisions of the firm: single-family homes,townhomes,and custom homes.Alan did not enjoy the demands of custom home buyers and Bill did not enjoy the cookie-cutter work of the other divisions.The brothers agreed to split the business with Bill assuming the responsibilities and contracts of the custom home division and Alan handling the remaining divisions.Alan told Bill he could continue to use the company offices until he was able to find offices of his own.Bill met his clients at the company offices,used the plans of the company and even continued to use the company stationery.Three months later Bill left town,leaving custom homes unfinished and taking the deposits of three customers with him.The customers have sued Alan.Which of the following statements is true?

Question

Quizplus · Accepted Answer

Alan is liable because of apparent authority. Despite the fact that Alan and Bill had split the business and Bill was no longer officially associated with the company, he continued to act as if he were. By using the company offices, plans, and stationery, he created the appearance of still being affiliated with the company, leading customers to believe they were dealing with a representative of the company. This gives rise to the legal concept of "apparent authority," where a third party reasonably believes an individual has the authority to act on behalf of a principal (in this case, Alan and his company), even if that authority is not actually present. Therefore, Alan could be held liable for the actions of Bill, as the customers reasonably believed they were dealing with a representative of the company.

Alan Freeman and Bill Freeman,brothers,operated a Residential Construction Firm